Louisiana District Court Agrees that a Medicare Set Aside is Appropriate in a Liability Case

United States Magistrate Judge Patrick J. Hanna, and members of the United States District Court for the Western District of Louisiana recently interpreted the requirements of the Medicare Secondary Payer Act as it relates to the Medicare’s future interests in  Big R Towing, Inc. v. Benoit, et al., No. 10-538, 2011 U.S. Dist. LEXIS 1392 (W.D. La. Jan. 5, 2011).

The Medicare Compliance industry has been eagerly awaiting any ruling interpreting the Mandatory Secondary Payer (MSP) Act as it relates to Medicare’s interest in settlements or awards that address the future medical component of a Beneficiary’s care.  Much debate has centered on the lack of concrete statutory language obligating the parties to a liability settlement to consider Medicare’s interests by allocating or setting aside a portion of the plaintiff’s settlement funds to address Medicare’s interests or to avoid responsibility for ongoing care where a primary insurance source exists.  The Louisiana court made some clearly erroneous findings in Benoit but, more importantly, laid the groundwork for the liability insurance industry to take notice that the federal courts are beginning to look closely at the MSP Act as it relates to liability settlements and has, in at least in one district, determined that the Act requires Medicare’s interests be protected in the future medical component of a case.

In Benoit, the plaintiff was, at the time of a settlement conference, a Social Security Disability recipient. Correctly, the parties realized that due to SSDI eligibility, the plaintiff would soon be entitled to Medicare benefits. In what should be a more regular occurrence across the insurance industry, the parties agreed that Benoit would be responsible for protecting Medicare’s future interests under the Medicare Secondary Payer Act. The parties then made an oral motion for the court to determine Benoit’s future medical expenses in order to set aside funds to protect Medicare’s interests.

The court considered testimony from the medical providers in determining that $52,500.00 was to be “set aside” by Benoit to fund his future care (back surgery and a hip replacement) and before Medicare would be responsible for payment. Additionally, the court ruled that Benoit was also responsible to reimburse Medicare for any payments made on a conditional basis for medical expenses previously incurred.

Court Findings Have Potentially Far-Reaching Effects in Future Liability Settlements

The court made several findings of fact that, while ill informed regarding Medicare procedure, still have potentially far reaching effects. First, the court found that Medicare does not have a policy or procedure in effect for reviewing or providing an opinion on the adequacy of the future medical aspect of a liability settlement. Clearly, the evidence received by the court omitted the fact that seven of ten Medicare Regional Offices review liability Medicare set aside arrangements in liability cases. The Regional Office responsible for Louisiana cases is located in Dallas. Dallas has advised that they will review “large settlements” which may have applied to Mr. Benoit’s $150,000.00 aggregate settlement. Second, the court determined the adequacy of the set aside amount based upon what appears to be a rough estimation of the future care pursuant to the testimony of the medical providers as to the hospital and surgical fees only. Even a cursory investigation of the elements of a proper Medicare set aside arrangement would have established that future medical needs related to an injury may include durable medical equipment, post surgical follow up, physical therapy and, most importantly, medication. Those costs alone could conceivably double the amount testified to by the providers. While the court considered Medicare’s interests, it appears to have been done in a most superficial manner thus setting the stage for Medicare to closely examine any future expenditures requested on behalf of Mr. Benoit, should they be presented.

Court Rulings Concur That Medicare’s Future Interests Are To Be Protected

In its findings of law, the court again acknowledged the agreement, based on the MSP statute, that Medicare’s future interests were to be protected and that funds were to be set aside to protect those interests.

The Benoit case presents several significant issues in Medicare compliance as it relates to liability cases. Significantly, there was little to no debate among the parties to the litigation or from the court, that the Medicare Secondary Payer Act obligates the parties to protect Medicare’s future interests in a settlement. This type of agreement represents the exception rather than the rule in the liability context. While most of those familiar with the Act and the Medicare interpretation of it believe that the statute is so broad as to encompass Medicare’s future interests, there are many who would suggest that the opposite is true. Additionally, the parties also agreed that the proper vehicle by which to protect Medicare’s interests is a set-aside account. While experts will take issue with the manner by which the set aside amount was determined and the potential impermissible shifting of the conditional payment burden away from the primary payer, the case itself represents the beginning of what may become a paradigm shift in the way liability cases are handled. The courts, at least in Louisiana and aided by the intent of the parties, are beginning to acknowledge the long reach of the MSP statute and their obligations in protecting Medicare’s future interests in liability cases.